Minimal Wages

Work for a Living, Make a Living

The Editors December 18, 2013 - 10:53am

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In a recent speech on economic inequality, President Barack Obama drove home his argument[2] for raising the national minimum wage with a quotation: “They who feed, clothe, and lodge the whole body of the people should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.” Karl Marx? Franklin Delano Roosevelt? No: Adam Smith, described by the president as the “the father of free-market economics.” Not that FDR would have disagreed with Smith. Before helping to establish the nation’s first minimum wage in 1938, FDR declared that “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

Today many businesses in this country depend, if not for their existence, then for some of their profits on paying less than living wages to their workers. The government keeps many of these workers out of poverty by providing them with tax credits and public assistance—in effect subsidizing their employers by making up for inadequate wages. A full-time worker making the current minimum wage ($7.25 an hour) earns just over $15,000 a year, almost 20 percent below the poverty line for a family of three. If such a family is to be “tolerably well fed and lodged,” they will need food stamps and housing subsidies. Many of them, lacking employer-based health insurance, will also qualify for Medicaid. From time to time, a big company will unwittingly acknowledge that many of its own workers don’t make enough to meet basic needs. A Walmart in Canton, Ohio, was recently embarrassed by reports that it had organized a Thanksgiving food drive[3] for its “associates.”

It wasn’t always this way. The minimum wage in 1968—$10.65 an hour in today’s dollars—was just over half the country's median wage. If it had kept up with inflation and gains in labor productivity since then, it would now be $25 an hour. No one in Washington supports raising the national minimum wage that high, but Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) have introduced legislation that would raise it to $10.10[4] and index it to future increases in the cost of living—making the minimum wage not only more fair, but also more predictable and less subject to political exploitation. The Economic Policy Institute estimates that such legislation would affect 30 million American workers.

Contrary to popular misconceptions nourished by some in the media, most of the low-wage workers who would benefit from a higher minimum wage are not teenagers earning a little pocket money and learning some basic job skills. More than 90 percent of them are adults and almost a third are parents. The federal government spends around $7 billion a year on public assistance just for the families of fast-food workers. If conservative lawmakers are serious about streamlining entitlement programs and promoting self-reliance, they should be lining up behind proposals to raise the minimum wage.

So why aren’t they? It isn’t for lack of public support. A large majority of voters from both parties are in favor of raising the minimum wage. Whatever their opinions about welfare, most Americans agree with Adam Smith that those who work for a living should actually make one. Opponents of a higher minimum wage say it will only hurt the poor by reducing the number of jobs: when labor costs are higher, they warn, employers will hire fewer workers. This argument has a certain intuitive force, but several recent studies suggest that modest minimum-wage increases have no significant effect on employment levels. Lobbyists for retailers and fast-food restaurants also argue that higher wages will drive up business costs, which will be passed along to consumers as higher prices. But research suggests that a $10.10 minimum wage would add only a few pennies to the price of a hamburger. The lobbyists don’t mention that the big corporations they represent could also absorb some of the higher labor costs by accepting lower profit margins. Some of what a McDonald’s franchise owner pays in higher wages, for example, ought to come out of the fee he has to pay to the McDonald’s Corporation[5], which made $5.5 billion in profit in 2012.

A higher minimum wage would be good for the nation’s economy. It would stimulate demand by giving low-wage workers more spending power. It would save Washington and the states billions of dollars on entitlement programs by reducing poverty. But the argument for raising the minimum wage is as much moral as economic; it is an argument about fairness and the dignity of labor. No one who works full time in the richest country in the world should need to supplement her income with handouts, public or private. Or as the president put it in his speech, “If you work hard, you should make a decent living.” Adam Smith couldn’t have said it better.